Food stamp cuts add more uncertainty to retailers’ holiday outlook

By Andria Cheng

USDA

New benefits

On Friday, 48 million Americans currently on the government’s food stamps program will start to see their maximum monthly allotment for a family of four decline $36 to $632 a month.

The cut is a result of the expiration of a temporary benefit boost installed in 2009 in the wake of the economic downturn. The so-called Recovery Act in 2009 had increased the maximum allotment by 13.6%, according to the US Department of Agriculture.

With retailers already jittery about the industry’s critical holiday season, those catering to customers on food stamps are now also watching the impact the reduction might have on consumer spending. The payroll tax hike earlier this year has hurt retailers.

Kroger said it’ll continue to take business costs out to give customers “better value for their money.” It said it’s also factored in the impact of the reduction in its guidance, Credit Suisse analyst Edward Kelly said.

Wal-Mart’s U.S. namesake unit’s CEO Bill Simon said earlier this month that the company is “cautious but modestly optimistic,” adding when the benefits are cut, price becomes more important to the consumers, which he said will play to Wal-Mart’s advantage. The company has the biggest share of the U.S. food stamp spending, analysts said. For example, when a recent Electronics Benefit Transfer system that allows beneficiaries to use the cards for purchases went haywire in 17 states, two of Wal-Mart’s Louisiana stores were picked clean.

According to the Wall Street Journal, Wal-Mart estimated it gets about 18% of total U.S. outlays on food stamps, meaning Wal-Mart rang in $14 billion of the $80 billion the USDA said was appropriated for food stamps in the year ended in September 2012.

The Center on Budget and Policy Priorities said in August the total cut is estimated to be $5 billion in fiscal year 2014 and an additional $6 billion across fiscal years 2015 and 2016. It added the benefit will will hurt about 23 million low-income households.

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Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.